Tax benefits of owning your home
Oceans of paper have been filled with dissertations whether it is more beneficial to rent vs. own your home. You can read our own take on it here… One thing that very few sources mention are potential tax benefits* of owning your home. In some cases they can tip the scale substantially towards the ownership side.
How can owning a house save you money?
1. Mortgage interest
Chances are that you have a mortgage on your house. And at the end of each year you’re receiving a form from your financial institution detailing how much interest you’ve paid over the course of the year. Save that form. Interest paid on mortgage used to finance your primary residence is tax deductible. But you probably knew that. Mortgage interest deduction is one of the most common ones claimed by tax payers.
2. Property tax deduction
You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.
You might be able to deduct property and real estate taxes you pay on your:
- Primary home
- Co-op apartment
- Vacation homes
3. Home office deduction
Do you run small business out of your home? Is that space used exclusively for business? If yes the IRS allows you to deduct utilities, real estate taxes, repairs, maintenance and other related expenses. The details of this deduction are too complex to list it in this post, but the simplest way is to claim standard deduction of $5 per square foot (up to $1,500) of the space dedicated as office use.
4. Energy efficiency updates and credits
As a homeowners can claim a federal tax credit for making certain improvements to their homes or installing appliances that are designed to boost energy efficiency. Solar, wind, geothermal, and fuel cell technology are all eligible for the Residential Renewable Energy Tax Credit.
Disclaimer: we are Realtors, not tax attorneys or CPA, so the above should be treated as anecdotal. Please consult with your tax preparer before you claim any of the credits.